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The Times: Huge Shell drilling programme heralds scramble for the Arctic

July 6, 2007
Steve Hawkes

Shell is preparing its biggest exploration programme in the Arctic Ocean off Alaska for more than a decade, a move that could establish a new frontier for the oil and gas industry.

The Anglo-Dutch energy giant expects to start a controversial three-year programme next month with a small armada of ships drilling a dozen wells in the Beaufort Sea 30 miles off the Alaskan coast.

Industry experts have claimed that it could spark a rush into one of the world’s biggest untapped energy reserves. Authorities believe that the Beaufort Sea contains eight billion barrels of oil and nearly 30 trillion cubic feet of gas. Despite fierce opposition from local communities and environmentalists, the US Minerals Management Service gave Shell the green light for the venture in February.

It is understood that Repsol of Spain, Norsk Hydro of Norway and Conoco-Phillips of the US are ready to follow Shell if the drilling proves successful. BP already operates the North Star field on the coastline of Alaska’s North Slope but Shell’s exploration activity is 20 to 30 miles closer to the Arctic fringe.

Malcolm Brinded, Shell’s chief executive of exploration and production, said: “There has been drilling there, there has been exploration there, but this is a return to make a new charge at it. Some people say that 25 per cent of the world’s undiscovered hydrocarbons sit in the Arctic. I think that may be optimistic but if it’s half right then it’s worth exploring. It has the right ingredients to be a good energy play and the world needs some new energy plays.”

Shell highlighted the huge potential of Alaska’s Arctic waters at a results presentation earlier this year. Super-majors such as Shell left the region in the 1990s after exploration in the Beaufort and Chukchi Seas but near-record oil and gas prices and the availability of new technologies mean it is now economical to return.

One of Shell’s first priorities will be to gauge the potential of the Sivulliq prospect, the new name for the Hammerhead discovery made by the group and Unocal in 1986. The campaign reflects a growing emphasis at Shell to differentiate itself from rivals by using technical knowhow to discover new hydrocarbon regions, given increased competition for “easy barrels” in mature provinces such as the North Sea.

After the reserves scandal three years ago, when Shell admitted overstating the proven reserves on its books by 20 per cent, the group has increased its exploration budget to £1 billion a year and halved the number of countries on its list of prospects. It is spending nearly £500 million a year on researching new seismic and production techniques such as gas injection. The group believes that its experience at the Sakhalin offshore field in the far east of Russia has given it vital experience in dealing with ice flows and Arctic conditions.

Shell also fine-tuned soundproofing critical in allowing it to drill at Sakhalin, which is a major feeding ground for endangered whales. That is also a key problem in the Beaufort Sea.

The group still faces major hurdles in Alaska. Local authorities have threatened litigation and the group has yet to reach a Conflict Avoidance Agreement with the local Inupiat Inuit people. Whalers have requested that Shell cease operations for up to 30 days in September, the time that bowhead whales migrate along the Northern Alaskan coast.

However, Mr Brinded insisted that Shell was doing all it could to address the concerns. “We have spent a huge amount of effort on environmental management and engaging with local communities,” he said. “We have really prepared for this summer.”

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article2034107.ece

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